Buy-to-let lending fell for the first time in three years during the first half of 2008 as the market was hit by the credit crunch.
A total of 144,600 buy-to-let loans were advanced during the six months to the end of June, 18 per cent fewer than during the previous six months, according to the Council of Mortgage Lenders.
The group said the credit crunch had limited activity in the sector, as a significant number of buy-to-let lenders relied on wholesale funding, which has dried up during the past year.
The credit crunch also contributed to a jump in the number of landlords who fell behind on mortgage repayments.
Around 1.1 per cent of all buy-to-let mortgages are now at least three months in arrears, nearly double the 0.63 per cent that were behind during the first half of 2007 and the highest figure since the group began collecting data on the market in 1998.
It is the third consecutive six-month period in which arrears levels have increased, although the CML said they remained lower than for the wider mortgage market, where they currently stand at 1.33 per cent.
The number of buy-to-let properties that were repossessed also increased during the period to 0.16 per cent, up from 0.1 per cent a year ago, and the same as for the wider mortgage market.
The group said some landlords were running into problems as a result of facing higher mortgage rates due to the credit crunch, but being unable to increase their rents during the short-term.
CML director general Michael Coogan said: “The shortage of mortgage funding is creating similar problems for buy-to-let landlords as it is for other borrowers.
“However, we expect the rental market to remain underpinned by strong demand, partly because some people who would like to buy a home are being forced to carry on renting for now.”